By Katherine Hayes

A key issue for insurers, businesses and consumers in health reform is working its way through the regulatory process. Beginning January 1, 2011, insurers will be required to spend a minimum percentage of insurance premiums on medical expenses, as opposed to administrative and marketing costs or profits. Insurers that fail to meet these minimum percentages, called medical loss ratios, will be required to rebate the difference in premiums. Group policies will be required to spend 85 percent on medical expenses and individual policies must spend 80 percent on medical expenses.

Last week, the National Association of Insurance Commissioners (NAIC) released the form that insurance companies will be required to use to report their medical loss ratios. The NAIC is expected to release additional documents in the coming weeks that provide information on how the forms should be completed, including key definitions on what activities performed by insures can actually be included as medical expenses. The association representing the health insurance industry, the Association of America’s Health Plans (AHIP) issued a letter last week expressing concerns that the NAIC has excluded certain costs. AHIP praised the openness of the NAIC process, but expressed concerns that NAIC will not allow anti-fraud and abuse activities, the costs of transitioning to a new coding system (ICD-10), utilization review activities, and the cost of a new wellness program in the individual market to be included as medical expenses.

Based on the content of the form released last week, it appears that NAIC will allow insurers to include quality improvement activities as medical expenses. It is expected that those activities will be defined in the upcoming release of additional documents.